It's cloud business - AWS - has been less obtrusive, but no less important in terms of profit generation and future growth. Ecommerce will not fade away, but in the context of global competition, Bezos' choice of a successor signals that the greatest opportunities may lie in its cloud services. JL
Lauren Goode reports in Wired:
AWS became Amazon’s main profit driver. Amazon figured out that infusing its cloud service with machine learning tools might give it a leg up on rivals Microsoft, Google, and IBM. In 2016, AWS released new machine learning services that allowed AWS customers to build their own mini-Alexas. It also launched a new cloud-based computer-vision service. Both are a “powerful revenue generator and a key to Amazon’s AI flywheel, as customers pay to get their machine learning from Amazon.”Jassy’s transition into the CEO role signals that AWS is going to become even more important than it already is.AMAZON FOUNDER AND chief executive Jeff Bezos said Tuesday he would be stepping down as CEO of the legendary ecommerce company to become its executive chair. The news, announced in a note to employees, arrived alongside Amazon’s earnings for the fourth quarter of 2020, during which the company generated over $125 billion in sales, propelled by holiday shopping and pandemic buying.
Bezos’ successor comes not from Amazon’s worldwide consumer business but from its cloud business. Longtime Amazon Web Services boss Andy Jassy will become the company’s chief executive when Bezos steps away from the day-to-day job sometime in the third quarter of this year. Jassy’s name will be new to many consumers, but those who closely follow Amazon’s inner workings say his appointment is no surprise.
“The timing was abrupt, but I suppose you don’t ‘ease’ people into these things,” says Patrick Moorhead, founder and principal analyst at Moor Insights & Strategy. “Andy Jassy was the perfect and only replacement for Bezos given his clear success with AWS.”
Daryl Plummer, a vice president and distinguished analyst at Gartner, concurs. “Jassy has been groomed for this role for a long time,” he says. “And in my mind, he’s a great person to start asking the question, ‘Where do we go next?’”
A Struggle to Find a Role
Jassy joined Amazon in 1997, three years after Bezos founded the company. According to The Everything Store, a book written by Bloomberg journalist Brad Stone, Jassy was a Harvard Business School grad who seemed “unlikely to fit in at a geeky technology startup.”
Jassy filled a few different roles in the early days; Stone writes that Jassy presented the original business plan for an Amazon music service in the late 1990s but wasn’t selected to lead it. He was also put in charge of Amazon’s personalization group for a period of time. A better opportunity came when Bezos appointed Jassy his “shadow,” a chief-of-staff role that gave him unique access into the World of Bezos. Jassy’s fate was sealed when he helped launch Amazon Web Services, or AWS, in 2006.
The original intent behind AWS was to address issues Amazon faced because of its rapid growth. The company relied on the same software and servers that many other internet companies used at the time, but over time found that this “monolithic” software was slowing its growth. So the company built its own cloud infrastructure service—not only for its own use, but, according to Jassy’s vision statement, so other companies could “use web services to build sophisticated and scalable applications.”
It was a wise move. Amazon didn’t report a meaningful profit for nearly 20 years, but AWS played a big part in making profitability a reality. Amazon started breaking out AWS’s numbers in 2014, when it reported a surprising $4.6 billion in revenue. And while a lot of internet users might have been unaware of the power Amazon had started wielding with AWS, any time there was an AWS outage—or someone tried to bravely go without using apps powered by Amazon—it became painfully obvious that AWS provided the underlying tech for many popular applications.
AWS Becomes a Profit Driver
Over time, AWS became Amazon’s main profit driver. Perhaps more notably, it got a lot brainier too, as Amazon figured out that infusing its cloud service with machine learning tools might give it a leg up on rivals Microsoft, Google, and IBM. In 2016, AWS released new machine learning services that allowed AWS customers, “which span from giants like Pinterest and Netflix to tiny startups, to build their own mini Alexas,” Steven Levy wrote in WIRED. It also launched a new cloud-based computer-vision service called Rekognition. These services are both a “powerful revenue generator and a key to Amazon’s AI flywheel, as customers as disparate as NASA and the NFL are paying to get their machine learning from Amazon,” Levy wrote.
AWS has drawn much less public and political attention than Amazon’s online store and legions of warehouse workers over the years, but Jassy’s unit has earned controversy of its own.
The cloud unit’s sales of Rekognition’s face recognition features to US law enforcement have drawn sharp criticism from civil rights groups and artificial intelligence researchers. In 2019, researchers Joy Buolamwini and Inioluwa Deborah Raji published evidence that Rekognition’s face analysis technology that tries to guess the gender of people in images made significantly more mistakes on darker skin tones.
In February 2020, Jassy defended AWS offering face recognition technology to law enforcement, saying he was also comfortable selling it to overseas governments. Months later, in the wake of protests after the killing of George Floyd by Minneapolis police, Amazon said it would pause sales of the technology for a year to give Congress time to regulate the technology. The company has been lobbying lawmakers with its ideas about what that regulation should look like.
Challenges for the New BossAWS continues to grow, although its fourth quarter growth—28 percent—fell below analysts’ expectations. For once, it was the company’s slowest growing unit, as pandemic-scarred shoppers flocked to Amazon’s ecommerce business. But it remains far larger than rivals. Google parent Alphabet broke out financial results for its cloud unit for the first time Tuesday: the unit lost $5.6 billion last year; its $13 billion in annual revenue was less than one-third Amazon’s $45 billion.
Amazon can’t keep leapfrogging everyone forever. Plummer notes that Google now offers some cloud services that AWS does not. One allows customers to “carry their work with them, go from cloud to cloud service,” Plummer says. If you’re Jassy, you’re exploring this, he adds.
Jassy’s leadership of AWS has also seen Amazon’s cloud become a mainstay of US government cloud contracts, and he is likely to keep pushing for more. A big early government win was a CIA contract for $600 million in 2013; government deals have become more important to AWS since. In December, the company renewed its legal battle to undo a Pentagon decision to award a cloud contract called JEDI, potentially worth $10 billion, to Microsoft. Jassy is a member of the National Security Commission on Artificial Intelligence, which advises Congress, and has recommended that the Pentagon work more with the tech industry.
Amazon's scale and market clout, particularly in retail, has some lawmakers calling for antitrust action against the company. Facing down accusations of anticompetitive behavior could be one of Jassy’s main challenges in the next few years. He’ll also face the business challenge of sustaining growth.
Generally speaking, Jassy’s transition into the CEO role signals that AWS is going to become even more important than it already is. “They got into AI. They dabbled in quantum computing. They’re getting into space,” Plummer says. “I think it’s a good time to be AWS, but it’s also time to have someone running it who really has a head for how the world is changing around them.”
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